A survey in 2019 found that 57 percent of Americans had life insurance. This is inspiring that more than half of the US population is aware of the benefits of life insurance. But, what will happen to the rest?
There is no need to explain the advantages of having a life insurance policy. If you are buying it to protect your family from financial uncertainty after your death, term life insurance is highly recommended.
A common demand of most policyholders is the cash value. So, there is nothing wondrous if someone asks about the cash value in term life insurance. Before you take a policy, you must understand all its facilities.
In this article, we will cover how the term life policy works and if there is any cash value. Let’s go ahead.
Understanding the term life insurance
Though life insurance is no more a new concept, the variation often confuses policyholders. At first, let’s be clarified what is term life insurance.
Term life insurance is nothing but a contract between an insurance company and a policyholder. It is often called pure insurance due to its nature.
The insurance company has to pay the death benefits to your beneficiaries in case of your premature death within a certain period. Once the term expires, you will have three options.
Then, a policyholder can renew the contract, or switch to permanent coverage, or conclude the policy. The premium of this insurance policy is set based on the policy holder’s age, health, and anticipation of lifespan.
There are several reasons to have term life insurance. Most people pick it due to its affordability. Besides, it ensures financial stability for your spouse and kids even after your death.
How term life insurance works
Like all other insurance policies, term life insurance maintains the same process. The insurance company takes the probable risk of your premature death for a certain monthly premium.
The contract is similar to regular car and home insurance. Based on this contract, a policyholder agrees to pay a monthly premium for a specified term usually set between ten to thirty years.
If a policyholder passes through the term without dying, he has to buy another policy to keep the insurance active. In opposition, the insurance company has to pay the benefit to your beneficiaries in case of your death within the policy’s term.
Compared with other policies, the premium of this insurance is quite cheaper. This is why term life insurance is popular worldwide for a large payout at the end.
Does the policy have a cash value?
This is a common question that comes into policy holders’ minds. The straight answer to this question is “No”. Nothing will change unless the policy ends or the policyholder passes away.
You have to pay the monthly premium for a certain period to reduce the risk of sudden demise. When the term reaches the end, nothing will be covered anymore. The procedure is more straightforward than others.
Term life insurance doesn’t cover cash for family emergencies, preventing vulnerable financial conditions and some others like these.
The policy is recommended for adults who have dependents. It ensures preventing the financial uncertainty caused by your premature death.
However, there is an optional feature called return of premium [ROP] that offers cash value. If you want to know more, contact your insurer.
Though term life insurance does not provide cash value like whole life and universal life insurance policies, it is still recommended for those who are the only earner of a family and want to protect their dependents from financial risk.